Profit warnings have become commonplace in the national media, with once-booming businesses such as Mothercare, Beales and Patisserie Valerie revealing that they have been crippled by a rise in online competition, or in the latter case, mismanagement.
Tony Hughes, negotiations and sales specialist at Huthwaite International, a leading global provider of sales, negotiation and communication skills development, examines the lessons the business community can take from these events.
1. The economy is changing
There are significant factors at play that are leading to the death of some of the high-street’s most well-known, and in some cases, well-loved brands.
The rise in the digital economy has been used as a scapegoat for many of the big businesses struggling to compete amidst profit warnings. While brands such as Blockbuster and HMV can be forgiven for blaming digital technology for outsmarting their offering – can the likes of Coast and Toys R Us, especially given consumer demand for clothes and toys remains relatively strong regardless of economic conditions?
Simply put, these businesses are struggling to compete in a changing market. Traditionally the likes of Toys R Us had competitors on the high street, but other than that, major competition was somewhat limited. Fast forward to the present and both businesses, although entirely different in their offering, face the same challenges; competition increasing ten-fold not from other high-street retailers, but from online counterparts offering a more convenient, cheaper alternative for products of a similar quality.
2. The role of strategic negotiation to boost profit is under-used
Of course, it’s not just these challenges that the high-street is struggling to overcome, and at times of trouble it’s key for retailers to maximise their margin wherever possible. However, when it comes to this, many overlook the crucial role that strategic negotiation can play.
Take rental costs. Clearly, it’s more cost effective to manage a warehouse using AI and minimal labour costs, than a store with set opening hours, high rental overheads and major contractual obligations. While these are often credited as being the final nail on the coffin of a failing retailer, how many have taken a systematic approach to negotiating on their fixed overheads?
The same can be said for the multitude of suppliers working with a given retailer: applying a systematic approach to negotiating on every deal can bring major benefits, and the “negotiate with us or we go out of business and you lose us as a customer” position can be used as leverage.
In the short-term, particularly at times of trouble, this approach is essential. Huthwaite’s research shows us that businesses with a systematic approach to sales and negotiation are proven to experience 42.7% greater growth to the bottom line than those without.
To succeed, businesses must consider areas in which they can negotiate to save money and improve cash flow across the entire organisation. This includes a whole range of organisational considerations, with our data showing that six out of the top ten most effective margin maximising strategies relate to negotiation. These being:
- Improving productivity (53%)
- Reducing overheads (53%)
- Cost-effective purchasing (50%)
- Improving customer retention (49%)
- Reducing fixed costs (48%)
- Managing general operating costs from suppliers (41%)
3. It’s likely there might be more victims
Despite negotiation playing a major role in driving potential business profitability and growth, our research has found that they aren’t always implementing a formal approach to negotiation.
If retailers don’t consider strategic negotiation as part of their broader business strategy, there’s really no getting away from profit loss. Negotiation is a critical aspect of business and as such retailers should be using this to their advantage. Companies with an effective, systematic approach in place experience 42.7% greater growth than those without. A figure which is difficult to ignore in light of such uncertainty on the high street.
4. The power of trust shouldn’t be underestimated
While a different beast altogether, Patisserie Valerie presents some interesting lessons too. It is now apparent that in Patisserie Valerie’s case, investment and lending has been totally mismanaged. Revelations of two secret company overdrafts totalling £10million reveal a whole series of issues, which immediately raise major concerns regarding trust.
And trust, when it comes to running a business – not least when it comes to negotiating your way out of trouble – trust is a huge factor for success, or in this case, survival. Put simply, without reputation you sacrifice bargaining power.
The chain now needs to continue trading successfully as it has done, while negotiate a multitude of deals to ensure it weathers the coming quarter. While consumer confidence is unlikely to take a major hit, the real challenge will be dealing with finance partners and suppliers. Clearly the chain’s trust capital is now gone, reducing its leverage and opening the door for suppliers and partners to put their costs up to protect themselves, and impose unfavourable terms, at least while the business remains on shaky ground.
Again, the role of strategic negotiation has to take centre stage. Despite being on the back foot, the chain has a fantastic brand and a proven customer base and these are factors the management should take forward to the negotiation table.